Will Investing In TripAdvisor Take Your Money For A Ride?

Gary Cassady, provided by

Published 4:00 am, Thursday, April 7, 2011

With the announced spinoff of TripAdvisor from Expedia (NASDAQ: EXPE), investors need some guidance in sifting through the rubble. Specifically, does TripAdvisor have what it takes to stand - and thrive - on its own?

Credit rating giant Fitch believes that TripAdvisor, as it stands now, is a significant contributor to the overall credit quality of Expedia. Given this nod of confidence, investors might approach the concept of a stand-alone TripAdvisor positively.

Fitch also sees a possibility, if not likelihood, that TripAdvisor will grow into a competitor for its former partner, Expedia. The independence of being its own company will, Fitch theorizes, give TripAdvisor flexibility to rearrange its hotel bookings system, streamlining it to better compete with Kayak and other direct booking companies.

TripAdvisor is already the world's largest travel site, allowing clients to find hotels, flights, restaurants, and entertainment in cities across the globe. This presents some interesting synergy possibilities for the future. For example, TripAdvisor could partner with entertainment venues to offer discounted tickets to shows or sporting events. They could partner with restaurants to offer discounted prices to patrons who make reservations through the website. The possibilities are endless, as are the potential profits.

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The exact design of the split has not yet been determined, and will still require formal approval from Expedia's board, as well as approval from shareholders. Expedia did release its possible plans for how the split will take place, announcing in a release that "It is anticipated that the transaction will take the form of a distribution of stock of TripAdvisor to Expedia stockholders or a reclassification of Expedia stock, with the holders of Expedia stock receiving a proportionate amount of TripAdvisor stock, in either case in a tax free transaction."

After-market trading has Expedia up $2.90 a share (+12.95%) at time of posting, perhaps reflecting investor confidence that something good will come of this proposed split. At the very least, this is an interesting development for savvy investors to follow, for both the short term and long term.

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